Buyers are pouncing on Jaguar Mining

Traders area digging for gold in Jaguar Mining.

The mining company received a $1 billion acquisition offer from China Shandong Gold in November, valuing JAG at $9.30 a share and prompting a strategic process to explore alternatives. But Jaguar's CEO resigned in December, and the stock dipped back under $7 after the firm indicated that the review process may not end in a definite transaction.

Option activity has been interesting in the last month and really lit up Friday morning. Traders were buying the June 8 calls for $0.80 while selling the June 10 calls for $0.15. This call spread traded more than 5,000 times.

The position allows traders to buy JAG for $8 but obligates them to sell it for $10 if the stock goes above that level. The bet cost $0.65, so they'll earn more than 200 percent if the stock rallies to $10 or higher.

Traders use this type of vertical spread --buying calls at the lower strike and selling the higher strike--to offset the cost of establishing the position, though it limits upside potential. (See our Education section)

JAG rose 1.68 percent to $7.28 on Friday and is up 15 percent in the last month as buyers return to the gold-mining space in general.

More than 13,000 Jaguar calls traded versus just 1,300 puts in the session, a reflection of the bullish sentiment. Total option volume was nearly 5 times average levels.

(A version of this post appeared on InsideOptions Pro on Friday.)

More From optionMONSTER

• Rowan draws call buying at key level
  
• Big put spread targets regional banks
  
• Rockwood bulls look for right formula